Final answer:
A master budget is a comprehensive financial plan that outlines an organization's projected income, expenses, and cash flows. It consists of individual budgets such as sales, production, operating expenses, and cash budgets. It helps managers plan, allocate resources, and monitor performance.
Step-by-step explanation:
A master budget is a comprehensive financial plan that identifies and outlines an organization's projected income, expenses, and cash flows for a specific period of time, usually one year. It consists of several individual budgets, including the sales budget, production budget, operating expenses budget, and cash budget, among others.
The sales budget estimates the expected sales volume and revenue, while the production budget determines the number of units to be produced. The operating expenses budget includes all non-production costs, such as marketing expenses and administrative costs. The cash budget forecasts the inflows and outflows of cash and helps identify any potential cash flow issues.
The master budget serves as a roadmap for the organization's financial activities and helps managers plan, allocate resources, and monitor performance. By consolidating all the individual budgets, it provides a comprehensive view of the organization's financial health and helps facilitate decision-making.